Ukraine Launches WTO Challenge Against Australia Cigarette Packaging Law

21 March 2012

An Australian law intended to make the packaging of cigarettes less appealing to consumers is now facing a WTO challenge, with Ukraine formally lodging a complaint at the global trade body last week. (DS434) The move follows heated discussions between WTO members in recent months over the law's conformity with multilateral trade rules.

The Australian law - also known as the Plain Packaging Act - requires that all cigarettes sold in Australia be packaged with only one colour and shape and that a significant portion of the packaging be used for health warnings. Though the bill was approved last December, tobacco companies have until December 2012 to make the necessary changes in their production.

The law has been defended by Australian officials as being necessary for public health reasons, with Australian Trade Minister Craig Emerson publicly claiming that "it's not anti-trade; it's anti-cancer." According to government data, smoking kills 15,000 Australians annually, along with incurring about A$31 billion, or US$33 billion, in health and workplace expenses each year.

In response to the WTO complaint, Canberra said it would participate in the consultations "in a constructive manner."

"Australia is prepared to defend any challenge that might result from the consultations," Emerson said, in a statement emailed to Bloomberg.

The WTO complaint is the latest in a series of legal challenges lodged against Canberra over the cigarette packing law. Major tobacco companies, including Philip Morris International, Japan Tobacco, British American Tobacco, and Imperial Tobacco, have filed suits arguing that the plain packaging legislation is unconstitutional; Australia's high court is set to hear the cases in April.

Philip Morris is also challenging the law under the 1993 Bilateral Investment Treaty (BIT) between Australia and Hong Kong.

Trademark violations?

In its complaint, Ukraine claims that the law is inconsistent with the WTO's Agreements on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Technical Barriers to Trade (TBT), and the General Agreement on Tariffs and Trade (GATT).


With regards to TRIPS, Kiev argues that the Australian measure violates the WTO's rules on intellectual property by restricting the usage of trademarks, discriminating on the basis of nationality, and preventing the lawful exploitation of patent rights.

This anti-tobacco legislation - which Australia plans to extend to cigars and loose-leaf tobacco products - has already been under discussion at the WTO TRIPS Council since June, where it sparked debate among members regarding the balance between public health considerations and intellectual property rights (See Bridges Weekly, 15 June 2011).

During the TRIPS discussions, a handful of developing country tobacco producers, led by the Dominican Republic, have argued that the law would negatively impact their domestic industries.

Meanwhile, a number of developed countries - backed by Brazil and Uruguay - have countered by reaffirming that WTO members have the right to use TRIPS flexibilities to protect public health (See Bridges Weekly, 7 March 2012).

Kiev: Law ‘more trade restrictive' than necessary

Ukraine also argues that the Australian law breaches the WTO's Technical Barriers to Trade (TBT) Agreement by being more trade restrictive than necessary to achieve Canberra's stated public heath objective, along with violating national treatment requirements set in that agreement.

In a submission to the WTO Committee on TBT last April, Australia had argued that its measures for the restriction of advertising and promotion of tobacco products and their packaging were consistent with its obligations under the World Health Organization (WHO) Framework Convention on Tobacco Control.

While compliance with a non-WTO agreement may not per se justify trade barriers, the TBT agreement permits trade restrictions where they are necessary to protect public health. Ukraine, however, argues that the measure is more trade restrictive than necessary to achieve the Convention's objective.

Kiev's consultation request comes only months after the US lost three cases at the panel stage under the TBT Agreement, which similarly addressed unnecessarily trade restrictive measures. These cases - regarding a ban for flavoured cigarettes, country of origin meat labelling requirements, and a dolphin-safe label for tuna products, respectively - are now at the appeals stage, with final rulings from the WTO's highest court expected within the coming months.

Importantly, in two of the cases the panels found that a restriction of lawful consumer information could hamper trade in an unnecessarily restrictive and thus illegal manner. If upheld by the Appellate Body, these panel rulings are thought to be interpreted in the disadvantage of Australia. This is particularly true if the plain packaging requirement is found to be too burdensome for producers in relation to the measure's potential to reduce smoking.

Next steps

Under WTO rules, the two countries will now have 60 days to reach a mutually agreed solution; if consultations fail, Ukraine has the right to request an expert panel to hear the case and issue a formal ruling.

ICTSD reporting; "Australia Targeted in WTO Complaint Over Ban on Tobacco Logos," BLOOMBERG, 13 March 2012; "Philip Morris challenges ‘unconstitutional' plain packaging law in High Court," THE AUSTRALIAN, 20 December 2011.

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